US v. United Tote, Inc.

• Decision Date: 10 May 1991
• Docket Number: Civ. A. No. 90-130 LON.
• Citation: 768 F. Supp. 1064
• Parties: UNITED STATES of America, Plaintiff, v. UNITED TOTE, INC., Defendant.
• Court: U.S. District Court — District of Delaware

768 F. Supp. 1064

UNITED STATES of America, Plaintiff, v. UNITED TOTE, INC., Defendant.

Civ. A. No. 90-130 LON.

United States District Court, D. Delaware.

May 10, 1991.

Kent A. Jordan, U.S. Attorney's Office, Wilmington, Del. (Richard L. Rosen, Jonathan M. Rich and Linda SooHoo, U.S. Dept. of Justice, of counsel), Washington, D.C., for plaintiff.

Henry N. Herndon, Jr., P. Clarkson Collins, Jr., Barbara MacDonald, of Morris, James, Hitchens & Williams, Wilmington, Del. (Donald I. Baker, Esquire, David R. Boyd, Kenneth G. Starling and Bruce M. Bettigole, of Sutherland, Asbill & Brennen, of counsel), Washington, D.C. for defendant.

OPINION

LONGOBARDI, Chief Judge.

On March 14, 1990, the Government brought the instant antitrust action to prevent and/or restrain an alleged violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18. The violation purportedly arose when Defendant United Tote, Inc. ("United Tote" or "United") acquired all of the outstanding shares of Autotote Systems, Inc. ("Autotote"). On April 11, 1990, the Government and United Tote entered into a hold separate agreement by which United Tote and Autotote would be operated and maintained separately and independently. After a six day trial, the following constitutes the Court's findings of fact and conclusions of law in the matter.

I. BACKGROUND

Pari-mutuel wagering is the most common form of wagering at horse races, grey-hound races and jai alai contests in the United States. The essential characteristic of pari-mutuel wagering is that the wagers of the betting patrons are combined into pools from which the successful bettors recover. As a result, wagering odds are determined by the size of the pools established by the patrons' wagers. The odds, conveyed to the bettors at frequent intervals, change continually until betting closes at the start of a race or event. Docket Item (D.I.) 105, ¶ 9.

A totalisator system supports pari-mutuel wagering by controlling the acceptance of wagers, calculating odds and payout, cashing winning tickets, and performing assorted management, accounting and reporting functions. Id., ¶ 12. Totalisator systems can be used to serve on-track, off-track and inter-track wagering. On-track wagering is conducted on the premises of a racetrack while that event is taking place.¹ Id.

Off-track wagering takes place somewhere other than the racetrack. Most commonly, it takes place at off-track betting "parlors", some of which televise the event taking place. An off-track totalisator system generally combines or "commingles" wagers from the remote locations into a common pari-mutuel pool maintained at the host track. In some instances, the combination of pools and the calculation of payout amounts are done by the off-track betting system itself. See generally Id.; Transcript ("Tr.") at 337-38, 340.

Inter-track wagering is similar to off-track wagering in that it entails the combination of wagering pools from different locations into a common pool at the host track. The only significant difference is the location where the wagering occurs. Inter-track wagering occurs at one race-track when it accepts bets on a live racing event at another track. In many cases, the racing event is televised from the host track where the contest is conducted to one or more "guest" or "satellite" tracks. Inter-track wagering then occurs when the wagers from the guest tracks are transmitted to the host track and combined with the host track's pari-mutuel pool. The host track's central computer calculates the resulting odds and returns that information to the guest tracks. As a result, betting patrons at the guest tracks share in the pari-mutuel pool of the host track and they receive the same payout for winning wagers as they would have received had they attended the live racing event.² D.I. 105, ¶ 28; Tr. at 244-45, 340-41.

By far, the most common form of totalisator system used in North America is the computerized "cash/sell" system that allows patrons to place bets and to cash winning tickets at the same window. A typical cash/sell system consists of a central computer, ticket issuing terminals, display equipment and associated peripheral equipment. The system also includes proprietary software to carry out the complex, high speed wagering functions required by modern pari-mutuel betting. D.I. 105, ¶¶ 15-17.

The interface between the totalisator system and pari-mutuel customer is the totalisator terminal. Totalisator terminals are most commonly operated by pari-mutuel tellers or clerks although a number of companies supply terminals that are operated manually by the patrons as well as some that accept pre-marked betting slips the patrons have prepared. After the terminals accept the wagering information, the terminal transmits it to a central computer system. Id., ¶ 12.

Terminals at a pari-mutuel facility are linked to one or more central processing units ("CPUs") which perform the bulk of the computer calculations for the system. The CPUs verify each bet and authorize the issuance of a printed ticket, aggregate the wagers into pools and calculate the resulting odds. The CPUs also commonly communicate the calculated odds for display on video devices or totalisator boards and calculate the final odds and payout amounts when the racing event is complete and the results are official. At that point, the winning bettors can present their tickets to the pari-mutuel tellers or clerks who enter them into the terminals. The terminals read and confirm the ticket as a winning ticket. The terminals then communicate information from the winning tickets to the CPUs, which calculate and display the payout amount to the clerk, who pays the patron. See generally Id., ¶¶ 12-14; Tr. at 919-21, 1149-50.

Totalisator systems are typically supplied pursuant to lease agreements. Under the agreement, a totalisator supplier provides and operates the totalisator system and guarantees that the system will perform accurately and reliably. Employees of the totalisator company operate, service and maintain the totalisator system. Because of the extreme importance of the totalisator function, a totalisator company must be prepared to prevent breakdowns and quickly repair any problems. For example, computer operators and maintenance personnel are typically located on-site at the race-track to ensure that the system functions smoothly and reliably. In addition, all major totalisator systems include backup computers that take control in the event that the primary computer malfunctions. Finally, the totalisator company often provides an uninterrupted power supply to protect against power failures. Totalisator suppliers usually assume liability for wagering revenues that are lost by the racetracks as a result of a totalisator system malfunction. Id., ¶ 22; Plaintiff's Exhibit ("PX") 179 at 39.

Prior to 1976, all totalisator systems in the United States market were "sell-only" systems that required the patron to purchase wagering tickets from one location and return to a different window to cash winning tickets. In 1976, American Totalisator ("AmTote") introduced the first cash/sell North American totalisator system at the Ontario Jockey Club in Canada. Tr. at 821-22. The primary innovation of the cash/sell totalisator system was that it allowed wagering patrons to return to the same terminal from which they placed their bets to cash their tickets. This development not only resulted in greater convenience to the wagering customer but also reduced labor costs to the track. The cash/sell totalisator system was immediately recognized as offering a number of advantages over the sell-only system and, at the present time, all but the smallest tracks and state fair events have converted to cash/sell systems. D.I. 105, ¶ 17.

AmTote, which enjoyed a dominant position in the North American totalisator industry prior to 1976, was able to consolidate and maintain its position after its introduction of the first North American cash/sell system, especially at the larger tracks. Tr. at 822. Although AmTote has witnessed a subsequent erosion of its market position, it still captures approximately 55% of the total revenues produced in the North American market. D.I. 105, ¶ 8. In addition, AmTote has announced that it will offer its first new totalisator system since its initial cash/sell system in 1976. AmTote calls its new system "Spectrum" and it has entered into a contract with the New York City Off-Track Betting Corporation to install Spectrum as early as April of 1991. Tr. at 1113-14. It is anticipated that this new system will provide AmTote with additional competitive strength in the coming years.

Autotote is a privately owned Delaware Corporation located in Newark, Delaware. Autotote's primary business is the provision of totalisator systems and services in the North American and foreign markets. At the time AmTote introduced its first cash/sell system in 1976, Autotote was an American subsidiary of ATL, Ltd., an Australian totalisator company. Autotote served approximately forty racetracks in the United States and Canada, including some larger tracks, with its sell-only system. PX 1, ¶ 11. Autotote introduced its first cash/sell system in North America in 1978 or 1979. At the time, AmTote and Autotote were the only totalisator companies offering cash/sell systems in the North American market. Tr. at 826.

United Tote is a Delaware corporation with its principal place of business in Shepard, Montana. United Tote got its start approximately thirty-five years ago when the Shelhamer family purchased a small track in Belgrade, Montana. After discovering that there was no one in that area who was experienced in pari-mutuel wagering, United Tote was formed to provide a variety of totalisator and other racing services to small racing tracks and racing fairs in Montana and adjacent northwestern states. The totalisator services provided at that time used older sell-only...